The operator introduces the CNA Fourth Quarter 2023 Earnings Conference Call and turns the call over to Ralitza Todorova, Vice President of Investor Relations & Rating Agencies. She introduces the speakers, Dino Robusto (Chairman and CEO) and Scott Lindquist (CFO), and reminds participants that the call is being recorded and may include forward-looking statements and non-GAAP financial measures. She also provides information on accessing a replay of the call.

The transcript of the call may contain errors and the CEO, Dino Robusto, will be discussing the strong results of the company in the fourth quarter and for the full year. The company saw double-digit growth in gross written premium and a 39% increase in underwriting gain. Net investment income also increased significantly, with renewal pricing keeping pace with loss cost trends. The company's core income and net investment income both reached record highs in the fourth quarter.

The all-in combined ratio improved in the fourth quarter of 2023, with relatively low catastrophe losses and favorable prior period development. The P&C underlying combined ratio has been consistently below 92% for 12 consecutive quarters. There was 10% growth in both gross and net written premium, with a 5% renewal premium change. The pricing environment varies across different lines of business, with some experiencing accelerated rate increases due to social inflation, while others saw slight decreases in rates.

The company has seen an increase in exposure change and rate increases in their work comp and property lines, but a decrease in rate increases for D&O lines. The competitive environment is still favorable and the company has seen growth in new business and high retention rates. The combined ratio for the Specialty business unit was 90.8% in the fourth quarter, with an increase in underlying combined ratio due to higher expenses.

The Specialty division has maintained a stable loss ratio for the past three quarters, with moderate growth in premiums. The Commercial division had the lowest combined ratio in 15 years, with strong underwriting gains and growth in premiums. International also saw growth in premiums, but had slightly higher catastrophe losses and expenses.

The international gross and net written premiums were flat in the quarter, with a 2% rate and 83% retention. The company achieved record core income of $1.3 billion for the full year, driven by strong returns and underwriting gains. The P&C operations had a record-high underwriting gain and a seventh consecutive year of improved combined ratio. The Specialty segment had a combined ratio of 90.4%, while Commercial had a record-low combined ratio of 96%. Gross written premium growth was 10% and new business grew by 11%, with a strong retention rate of 85%.

The rates for the year increased by 5% and the renewal premium change was 7%, with exposures increasing by 2%. The impact of prior period development was slightly favorable for P&C overall, with some lines of business seeing adverse development for the 2015-2019 accident years. However, there was also favorable development in other lines, such as work comp and surety. For more recent accident years, the loss ratios are holding up well. The impact from adverse development is diminishing for commercial auto and medical professional liability, but more time is needed to determine if the general liability line is completely in the clear. The January 1 reinsurance renewals also had a positive impact.

The company took a conservative approach during the pandemic years and retained most of the earned rates in excess of loss cost trends. Reinsurance renewals went well with minor changes in ceding commission and favorable economics. Core income increased by 37% compared to the previous year, with a 21% increase in net investment income and a 39% increase in P&C underwriting gain. The expense ratio for the fourth quarter was flat compared to the previous year, and the company expects it to be around 31% for 2024.

The P&C net prior period development impact on the combined ratio was 0.3 points favorable in the current quarter. Favorable development in the Specialty and Commercial segments was partially offset by unfavorable development in the Corporate segment. The paid-to-incurred ratio has been relatively stable since the beginning of the pandemic. The Corporate segment had a core loss of $76 million, which included a noneconomic after-tax charge of $24 million for strengthening reserves. The cumulative incurred losses remain within the limit set by the loss portfolio transfer cover, and there is a timing difference in recognizing the benefit of the cover. As of year-end 2023, there is $417 million of deferred gain on the balance sheet that will be recaptured over time.

The company's fourth quarter results include a $12 million charge for mass tort abuse claims and a $19 million charge for office consolidation. The Life & Group segment had a core income of $4 million, with an increase in investment income due to active in-force management activities. The company also had a $4 million loss from policy buyouts. Total pretax net investment income increased from the previous year, driven by results from limited partnerships, common stocks, fixed income, and other investments.

In the current quarter, limited partnerships and common stocks generated a gain of $78 million, while fixed income and other investments produced $533 million of income. This is a significant increase compared to the prior year quarter, and the effective income yield of the consolidated portfolio also increased. For the full year, net investment income was $2.3 billion, with the increase driven by both limited partnership and common stock results and fixed income and other investments. Looking ahead to 2024, the trend is expected to continue, with income from fixed income and other investments projected to be around $2.150 billion. The first quarter of 2024 is expected to be similar to the fourth quarter of 2023.

The company's balance sheet remains strong with an increase in stockholders' equity and a significant improvement in net unrealized investment loss. Statutory capital in surplus also increased. The company has a conservative capital structure and strong operating cash flow. The effective tax rate on core income for the fourth quarter was 20.3% and the company expects it to be around 21% for the full year 2024. The company has announced a 5% increase in its regular quarterly dividend and a special dividend of $2 per share. Both will be paid on March 7, 2024, to shareholders of record on February 20, 2024.

CNA shares have a high dividend yield and the company had a successful year in terms of income. The market is experiencing varying dynamics, but CNA has navigated them well and expects to continue growing in 2024. They have seen rate increases where needed and expect this trend to continue. The first question in the earnings call was about loss cost inflation and the CEO responded by saying that they have seen rate increases of 4% with an additional 1% from exposure acting as rate, and this is enough to cover their loss cost trends.

The speaker discusses the loss cost trends for the company, which are currently between 6% and 6.5%. They mention that exposure gains are helping to offset the increase in loss costs, particularly in workers' comp. However, commercial auto is driving up loss costs with high single-digit trends, prompting the company to increase rates by 14 points. The speaker also notes the impact of social inflation on certain lines of business and expects to continue covering loss cost trends in the future.

The speaker discusses the increase in profitability for workers' compensation and the continued below-average loss cost trends. They also mention the need for rate adjustments in commercial auto insurance, which has been historically less profitable. The speaker emphasizes the importance of treating auto insurance as a profitable line of business rather than a loss leader.

The speaker expects that there will continue to be upward pressure on pricing in the insurance industry, as they are addressing each cycle separately. They also mentioned that there is some pressure on medical lines, but it is still relatively small. The rate decreases for D&O and cyber insurance have slowed down, but this is partially due to a seasonal mix of business.

The speaker discusses the gap between rate change and premium change in the International sector, stating that there was no gap and both were at 2%. However, recent quarters have shown a 3-5 point exposure to unit growth. The speaker explains that this is due to changes in participations, specifically in property towers and healthcare, which offset the still increasing valuation increases. The speaker confirms that if the exposure component was isolated, it would still be favorable in International. The conference call concludes with the speaker thanking everyone for attending.

This summary was generated with AI and may contain some inaccuracies.